ParrotDog campaign crucial for craft brewing’s credibility

Who wouldn’t want to own shares in a brewery!?

Craft brewing is growing at 25%+ per year. It’s sales are growing when alcohol sales overall are falling. Popularity is booming, and, best of all, it’s a brewery!

Except for one thing – craft brewing has a poor record in paying back its public shareholders.

ParrotDog’sPledgeMe equity crowdfunding campaign is craft’s third attempt at attracting investment from New Zealand shareholders.

The first attempt was when Moa floated on the stock exchange in 2012. Shares opened at $1.25 but fell quickly and have not yet recovered. Investors were initially interested, then cut their losses, with Milford Asset Management selling its 6% stake in Moa by 2014. Moa has yet to pay any dividend.

The second attempt came in 2014/15 when Renaissance and then Yeastie Boys chose equity crowdfunding as an alternative to the stock exchange. Both campaigns were a success for the brewers. Renaissance ran a second campaign last year, and Yeastie Boys’ campaign will no doubt be proclaimed by PledgeMe and ParrotDog as a big hit.

But neither of these crowdfunding campaigns have financially benefitted shareholders. Both Renaissance and Yeastie Boys told me their shares trade infrequently, at or near their original price. Shareholders seem happy with this, but it’s fair to say they’re feeling the love for the brands rather than futureproofing family finances.

ParrotDog’s campaign will need more than love. The expansion project looks like it has a seven-figure budget, with a new site and an initial tripling of production and sales to an estimated 750,000-900,000L/yr. PledgeMe equity campaigns can raise $2 million per year, and I believe ParrotDog is looking at raising $1-2 million in a flagship campaign for PledgeMe.

That’s if the PledgeMe campaign is the sole source of fundraising. ParrotDog might just be using PledgeMe to build interest in its expansion, while funding it with other sources. But I don’t think this is the case, given the effort ParrotDog and PledgeMe have both put into this launch. I believe this is the real deal.

ParrotDog is using PledgeMe to run an equity crowdfunding campaign. Equity crowdfunding is quite different to fundraising for a cause. Supporters are buying shares in the company, just as they would through the stock exchange. “Equity crowdfunding has not only lowered the barriers for companies raising investment, it has also made it easier for investors to invest,” Pledge Me says.

But it also notes the risks to investors: “Equity crowdfunding is risky….The usual rules do not apply to offers by issuers using this facility. As a result, you may not be given all the information usually required. You will also have fewer other legal protections for this investment.”

ParrotDog’s expansion plans and share packages are ambitious. It plans to move to larger premises with initial capacity to triple production, then triple it again in the medium term and expand into the other half of the building long term. Share packages start at $500, with extra benefits at $2000 and $35,000. These benefits are fun – discounts, events, a personalised glass – but they’re not financial.

Anyone investing $35,000 or more will expect a decent financial return, and these genuine investors will be looking closely at ParrotDog’s investment prospectus when it’s released at 9am on Thursday morning.

Genuine investors will be looking for this kind of information:

Basic financial data – share price, number of shares, company valuation. Is the PledgeMe campaign the sole source of funds for ParrotDog’s expansion, or are funds being raised through other equity sales or loans?

Projections for production, sales, profit and dividends. No dividends could mean no deal.

ParrotDog’s sales strategy. The market is getting mighty crowded, with Emerson’s, ParrotDog, Harrington’s, Steam and B-Studio plans to increase capacity by a combined 7-10 ML between 2015 and 2017. ParrotDog plans to triple production in this competitive market. Look for details on sales strategy, the size of the sales team, and named distribution and retail partners here and overseas. Something vague, like “we aim to expand in Australia and Asia”, isn’t detailed enough.

How has ParrotDog safeguarded its supply of ingredients, hops in particular, in this competitive period?

How will shares be sold, and how will the price be agreed? The process must be fast, cheap and transparent so investors know they are getting a fair price.

The ParrotDog launch is a big deal, not just for the brewery and PledgeMe, but for New Zealand craft brewing as a whole. To investors, craft brewing is now on its second strike, and this may be the last chance to prove it can offer a realistic payback and treat investors seriously.

Equity funding is riskier than other investments, and greater risks deserve better returns. If ParrotDog does a Moa and fails to reward investors, it will make it all the more difficult for brewers to attract funding in future. That’s why ParrotDog deserves the industry’s support.

ParrotDog’s Investment Prospectus will be issued at 9am Thursday 4 August here. Q&A session on Monday 8 August at BizDojo in Wellington and through livestream. Shares go on sale through PledgeMe at 3pm, Wednesday 10 August.